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ConocoPhillips, Santos Projects Will Swap Gas to Limit Costs

ConocoPhillips and Santos Ltd., developing separate liquefied natural gas projects in Australia at a cost of more than $40 billion, agreed to share pipelines and exchange gas to curb costs and reduce duplication.

The projects in Queensland state will build two pipeline connection points, according to a joint statement today from Adelaide-based Santos and ConocoPhillips’s partner, Sydney-based Origin Energy Ltd. Santos and Origin said they’re looking at opportunities for further collaboration.

ConocoPhillips and Origin are building a A$24.7 billion ($24 billion) project to liquefy natural gas for shipment to Asia, while Santos is developing an $18.5 billion development. BG Group Plc is building another coal seam gas-to-LNG project in Queensland. Australia, forecast to become the world’s largest supplier of LNG with seven projects under construction, is facing rising costs that threaten the industry’s expansion.

“The CSG-LNG sector failed to capture the synergies of large-scale consolidation earlier in the planning phase and as a result the industry is being developed in an inefficient way,” Mark Wiseman and Anthony Ta, Sydney-based analysts at Goldman Sachs Group Inc., said today in a note. “Players are increasingly looking at areas where they can reduce project operational risk and capture cost savings.”

Shares of Origin rose 1.7 percent to A$14.65 in Sydney trading, while Santos gained 1.7 percent to A$14.76. The benchmark S&P/ASX 200 Index increased 0.3 percent.

More Collaboration

Without the agreement, the projects would need 140 kilometers (87 miles) of additional pipelines and multiple connection points to send their gas to plants on Curtis Island for processing for export, according to the statement.

“It heralds the beginning of future value-adding collaboration and cooperation between the various projects,” Trevor Brown, the Queensland vice president for Santos, said today on a call with reporters.

Both the Australia Pacific LNG project, led by ConocoPhillips and Origin, and the Gladstone LNG venture, operated by Santos, are due to begin exports in 2015. Arrow Energy Ltd., owned by Royal Dutch Shell Plc and PetroChina Co., is considering a fourth development.

Santos and BG’s Australian unit, QGC Pty, reached an agreement in July to link pipelines on the Queensland mainland and on Curtis Island, where the plants that process coal-seam gas into LNG are based. Connecting the pipelines will allow the developments to buy, sell and swap gas at those points.

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